Ita v. M/S Freedom Board & Paper Mills, Amritsar

IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA No.2 12 of 2013Date of decision:23.04.2015Commissioner of Income Tax-II, Amritsar ....Appellant Versus M/s Freedom Board & Paper Mills, Amritsar ...... Responden ITA No.210 of 2013 Commissioner of Income Tax-II, Amritsar ....Appellant Versus M/s Freedom Board & Paper Mills, Amritsar ...... Responden ITA NoJ2I11 of 2013 Commissioner of Income Tax-II, Amritsar ....Appellant Versus M/s Freedom Board & Paper Mills, Amritsar ....Respondent ITA No.213 of 2013 — Commissioner of Income Tax-II, Amritsar ....Appellant Versus M/s Freedom Board & Paper Mills, Amritsar ......Respondent CORAM:HON'BLE MR.JUSTICE S.J.VAZIFDAR, ACTING CHIEF JUSTICEHON'BLE MR.JUSTICE G.S.SANDHAWALIAHON'BLE MR.JUSTICE G.S.SANDHAWALIA Present:Mr.Denesh Goyal, Advocate, for the appellant. Mr.S.K.Garg Narwana, Sr.Advocatewith Mr.Karan Garg, Advocate, for the respondent. G.S.Sandhawalia J. ~).SAILESH RANJAN2015.05.01 15:59I attest to the accuracy andintegrity of this document This judgment shall dispose of ITA Nos.212, 213, 210 & 211 of2013, pertaining to assessment years 2004-05, 2005-06, 2007-08 & 2009-10,respectively, involving common questions of law and facts. However, to dictateorders, facts have been taken from ITA No.212 of 2013, pertaining to theassessment year 2004-05. |The Revenue is aggrieved against the decision of the Income TaxAppellate Tribunal, Amritsar Bench (for short, the ‘Tribunal') passed in ITANo.468 (Asr)/2012 dated 19.03.2013 (Annexure A-3) vide which, it set aside there-assessment proceedings, on the ground that without rejecting the books ofaccount of the assessee and by making reference to only the report of theDepartmental Valuation Officer (for short, the 'DVO’'), the action of the AssessinAuthority to make the addition was not justified and thus, allowed the appeals ofthe assessee. The substantial questions of law which have, thus, been sought tobe raised by the Revenue, for admission of the appeals, read as under: “() Whether on the facts and circumstances of the case, theHonbpie IIAl was correct In law In quasning the reassessmentproceedings for the assessment year 2004-05 by holding that thereassessment proceedings were initiated solely on the basis ofreport of DVO. Whereas the reassessment proceedings wereinittated on the basis of DVO as also on the basis of addition madein assessment proceedings for the assessment year 2007-08. (li) Whether on the facts and circumstances of the case, theHon'ble ITAT was correct in law in holding that the AO should haverejected the books of account of the assessee before referring thematter to the DVO. Whereas the AO had referred the matter to theDVO after considering the valuation as per the report of theapproved valuer submitted by tne assessee to be on the lowerside. 3)The facts of the case show that during the course of assessment for the year 2007-08, it was noticed that the assessee had been raising construction of -3-SAILESH RANJAN2015.05.01 15:59I attest to the accuracy andintegrity of this document (li) Whether on the facts and circumstances of the case, theHon'ble ITAT was correct in law in holding that the AO should haverejected the books of account of the assessee before referring thematter to the DVO. Whereas the AO had referred the matter to theDVO after considering the valuation as per the report of theapproved valuer submitted by tne assessee to be on the lowerside. 3)The facts of the case show that during the course of assessment for the year 2007-08, it was noticed that the assessee had been raising construction of -3-SAILESH RANJAN2015.05.01 15:59I attest to the accuracy andintegrity of this document the tactory building from the year 2003-04 to the year 2008-09. The matter wasreferred to the valuation cell by the Assessment Officer (for short, the ‘AO') andon account of the difference ofL4,12,136/- in the construction of the factorybuilding, notice under Section 148 of the Income Tax Act, 1961 (for short, the‘Act’) was issued on 23.03.2011, by coming to the conclusion that the income hadescaped assessment. While filing the return on 14.11.2011, in pursuance of thenotice, the assessee took the objection that account books were regularlymaintained with all details of bills/vouchers and the report of the DVO hadalready been challenged in appeal before the Commissioner of Income Tax(Appeals) (for short, the 'CIT"). The said appeal had been disposed of with adirection to dispose of the objection of the assessee after giving an opportunity ofbeing heard. Accordingly, the difference in the valuation was determined at=3,79,248/-, for the period 2003-04, relevant to the assessment year 2004-05,Similar additions were also made for the subsequent years and the total differenceWas473,49,607/-. 4In the appeal filed by the assessee before the CIT, the plea taken wasthat the complete set of account books and the vouchers had been produced andno discrepancy was pointed out in the same. Reliance was, accordingly, placedupon the judgment of the Apex Court inSargam Cinema Vs. Commissioner of Income_Tax 2010 (628) ITR 513>apart from other precedents. The CIT,however, dismissed the appeal on the ground that the matter had been referred tothe DVO, who, after hearing the registered valuer of the appellant, had grantedthe benefit of L6,37,755/- towards the construction of the existing boundarywalls, gate, watchman etc. Accordingly, it was held that sufficient opportunitieshad been given to the assessee and the AO was well within her jurisdiction tomake the additions and there was vast variation between the cost of constructionvalued, by the DVO and in the books of account of the assessee. By the -4.SAILESH RANJAN2015.05.01 15:59I attest to the accuracy andintegrity of this document determination of the value, there was implied and underlined rejection of thebooks of account under Section 145(3) of the Act, which were suffering fromvarious discrepancies and variations, as available on the assessment records, 5 As noticed, the appeals have been allowed by the Tribunal byplacing reliance upon the judgment of the Apex Court in the case ofSargamCinema(supra) and by holding that the case of the assessee could not bereopened solely on the basis of the report of the DVO, without rejecting thebooks of account. 6.Counsel for the Revenue has sought to place reliance upon thejudgment of the Andhra Pradesh High Court inBharathit_Cement Corporatio(P) Ltd. Vs. Commissioner of Income Tax & others [2013] 356 ITR 74tosubmit that the judgment of the Apex Court in the case ofSargam Cinema(supra) had been considered in the order of the Tribunal and not applied in favourof the assessee. vaCounsel for the assessee, on the other hand, supported the reasoninggiven by the Tribunal and submitted that the assessee was maintaining books ofaccount and in the absence of any rejection, the matter could not have beenreferred to the DVO and it was a settled principle before this Court. 6.Counsel for the Revenue has sought to place reliance upon thejudgment of the Andhra Pradesh High Court inBharathit_Cement Corporatio(P) Ltd. Vs. Commissioner of Income Tax & others [2013] 356 ITR 74tosubmit that the judgment of the Apex Court in the case ofSargam Cinema(supra) had been considered in the order of the Tribunal and not applied in favourof the assessee. vaCounsel for the assessee, on the other hand, supported the reasoninggiven by the Tribunal and submitted that the assessee was maintaining books ofaccount and in the absence of any rejection, the matter could not have beenreferred to the DVO and it was a settled principle before this Court. § After hearing counsel for the parties, we are of the opinion that theabove questions of law are liable to be decided against the Revenue. A DivisionBench of this Court inCommissioner of Income Tax Vs. Chohan Resorts[2015] 359 ITR 394>in similar circumstances, held that where books of accountin respect of cost of construction are maintained, reference to the DVO can onlybe made on the basis of rejection of the books of account on some legal or justified basis. Relevant observation reads as under: “). Learned counsel for the revenue was unable to justify that whenthe books of account in respect of cost of construction have been maintained by the assessee and the same were not rejected, nowthe matter could be referred to the DVO for assessing the value.Wherever the books of account are maintained with respect to thecost of construction, the matter can be referred to the DVO afterthe books of account are rejected by the revenue on some /egal orjustified basis. In the absence of the same, the reference to theDVO cannot be upheld. In view of the above, we do not find anysubstance In the appeal. No question of law arises in this appealfor consideration of this Court. Dismisseca. Thereafter, in Nirpal_ Singh Vs. Commissioner of Income Tax[20135] 359 ITR 39>the said view was followed. | 9)Subsequently, in Dr.Raghuvendra Singh Vs. Commissioner _oIncome Tax (2014) 267 CTR (P&H) 376>the provisions of Section 142A of theAct were taken into consideration, including the circular No.5 of 2005, issued bythe Central Board of Direct Taxes, to come to a similar conclusion that withoutrejecting the books of account, the matter should not be referred to the DVO.Relevant observation reads as under: “13. Section 142A of the Act has been incorporated primarily forverification of the value of any investment in respect of casesenumerated therein. The Assessing Officer would not be justified ininvoking the aforesaid provision in every case and in a routinemanner. Where the assessee maintains regular books of accountfor the purpose of construction of the asset and produces thevouchers, it would not be appropriate for the Assessing Officer torefer the matter to the DVO without first rejecting thebooks ofaccount by prima facie concluding that the valuation appears to bemore than what has been depicted in the books of account.However, wherever the assessee has not maintained the reguiarbooks of account of cost of construction of the asset and claims itsvaluation on the basis of estimate of the report of the registeredvaluer, the Assessing Officer is empowered to make a reference tothe DVO after forming a prima facie opinion that the value of theInvestment Is not genuinely disclosed and Is required to beassessed for the purposes of Sections 69, 69A or 69B of the Act. Inother words, Section 142A of the Act, thus, cannot be invokedwhere valuation of the cost of construction is bonafide and based -6-SAILESH RANJAN2015.05.01 15:59I attest to the accuracy andintegrity of this document -6-SAILESH RANJAN2015.05.01 15:59I attest to the accuracy andintegrity of this document on books of account wnicn nas not been rejected. Ihe report of theDVO would be dealt with by the Assessing Officer under subsection (3) of Section 142A of the Act. There is logic and reasoningfor adopting the aforesaid view. Thereappears to be no occasionfor the revenue not to accept the valuation of the cost ofconstruction of an asset without rejecting the books of accountmaintained by the assessee. It would not only be unfair but againsttnepublic policy as well to assume that the assessee Is disnonestand he must have submitted an Incorrect account ofexpenses/investment.” 10.However, an exception was carved out in that case that since it was acase of search and seizure and disclosure of concealed income was made by wayof surrender, in the said circumstances, the cost of construction shown in thebooks of account were rightly inferred to be incorrect. In the present case, theproceedings have been sought to be opened by way of re-assessment, during thesubsequent assessment proceedings, without following the prescribed procedureof rejecting the books of account which had been maintained by the assessee andthus, the questions of law necessarily have to be decided against the Revenue, inview of the settled principles, discussed above, Accordingly, by holding that the Tribunal was correct in deleting theadditions made by the AO who never rejected the books of account beforereferring the matter to the DVO and on the basis of her report, the re-assessmentproceedings could not have been initiated, the present appeals are dismissed,